Since 1986, The Economist magazine has annually reported its Big Mac index (also called "burgernomics"), based on the theory of purchasing-power parity (PPP), the idea that exchange rates should move to equalise the prices of a basket of goods and services across different countries. The Economist's "basket" is a McDonald's Big Mac (so they are actually testing "The Law of One Price"), which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.

Now there is the "iPod Parity" index, based on the price of a 2GB Nano in 26 countries. Brazilians pay the most for an iPod, shelling out $327.71, well above second-placed India at $222.27, and Canada was the cheapest place to buy a Nano at $144.20. Thus, like the Big Mac Index, the iPod index shows that PPP does not hold.

1 Comments:

Wow! how prices come down. My son stood in line outside Circuit City Thanksgiving week-end 2005 in the freezing a.m. hours to purchase his iPod for $50 off. He snagged it for $280. He uses it everyday plugged into his car and it works great.